Gaps and holes

by John Quiggin on April 6, 2016

Press coverage massive leak of papers from hitherto unheard of (by me, at any rate) Panama law firm Mossack Fonseca has, unsurprisingly, focused on the world leaders, celebrities and fixers whose financial affairs have been revealed in an unflattering light. As regards the financial system as a whole, the New York Times draws a fairly typical conclusion

Above all, the Panama Papers reveal an industry that flourishes in the gaps and holes of international finance.

Really? This description suggests that those involved are obscure minor players in the system, of the sort who might be expected to deal with dodgy law firms in tax havens. The real business of global finance is undertaking by upstanding financial institutions with transparent practices.

But writing this down is enough to see that it is silly. As usual in such cases, we find familiar names: HSBC, UBS, Credit Suisse,and RBS and so on. And of course this is just one firm in one tax haven. The absence of major American banks reflects, in large measure, the fact that they prefer tax havens other than Panama, where there is a high degree of US state countrol.

Again as usual, the line is that this is all in the past, and that the banks have cleaned up their act. But the criminal chargeskeep on coming. This is scarcely surprising when no major bank has been shut down, even for the most egregious wrongdoing, and where only a handful of bank employees have faced jail time over frauds that total well into the hundreds of billions.

The financial globalization that began in the 1970s has not produced an efficient global financial market with a few gaps and holes. The gaps and holes are the market.

[^1]:Since it’s bound to be raised, the costs of financial globalisation to the developed world can’t be offset by considering rapid growth in China and India. These countries have, until recently, maintained tightly regulated financial systems, and have had plenty of criticism for it. Of course, that has resulted in plenty of corruption and misallocation of capital, but the sector simply hasn’t been enough to produce a large drag on growth. That’s clearly changed, in China at least, so it will be interesting to watch the consequences.

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Those gaps and holes aren’t gaps and holes in the financial sector – they are gaps and holes in the global governmental control of the financial sector. And the people we see exploiting them are, in fact, sociopaths, people who live off the grid and don’t care to interact with government… oh. No? It’s actually the leaders of governments who seek out these places outside of regulatory reach; away from bourgeoisie scrutiny.

So, yes, the holes in regulation are a market all their own; and the people in charge of regulation take a special interest in that market.

A great point. The worst thing that can happen in the aftermath of the leaked documents is for casual readers of the news to conclude that this is a fringe phenomenon limited to remote countries and shady law firms. It obscures a deeper truth about the rigged and often regressive nature of the tax system.

The New York Times was not part of the collective of journalists that examined those documents in secret for a whole year. Their report on the papers was on page 3. There is some speculation about their motivation.

As I’ve argued in the past, activities like tax avoidance/evasion and regulatory arbitrage aren’t peripheral flaws in a financial system primarily concerned with the efficient global allocation of capital. They are the core business, without which the profits of the global financial sector would be a tiny fraction of the $1 trillion or so now reaped annually.

Could you link to some of these past arguments? I’m interested in how this is quantitatively demonstrated

Since it’s bound to be raised, the costs of financial globalisation to the developed world can’t be offset by considering rapid growth in China and India. These countries have, until recently, maintained tightly regulated financial systems, and have had plenty of criticism for it. Of course, that has resulted in plenty of corruption and misallocation of capital, but the sector simply hasn’t been enough to produce a large drag on growth. That’s clearly changed, in China at least, so it will be interesting to watch the consequences.

There seem to be several possibly conflicting ideas tightly packed in there along with a presumed counterargument that isn’t spelled out. I don’t know if it is really irrelevant to the main argument or not — it is a footnote, so I guess not, but it is a footnote that seems to cover a lot of territory.

The New York Times tells us that the core question is ‘After these revelations, will anything change?’ That’s an excellent question. The New York Times continues: ‘But to what degree do the law and public shaming still have dominion over this global elite? A public scarred by repeated revelations of corruption in government, sports and finance will demand to know.’ Perhaps — but you don’t always get what you demand. If the answer to the question is ‘No’, nobody official is going to avow it.

The shocking thing about these revelations is that none of this is a surprise.

And in comes the left, not taking careful forensic aim, but blasting away in all directions with a shotgun. No-one is going to be hit by this response.

To refer to a previous post on millennials, the cost of property in London is now out of reach of ordinary people because it is being bought by rich individuals from around the world using … wait for it … Panamian registered secret organisations! (amongst other jurisdictions).

We knew this. We can stop this. And we don’t have to stop it by doing anything at all to Panamanian companies, or going after bankers. The UK government can restrict ownership of residential property in the UK right now. But successive governments haven’t. Surely, that’s your target?

Tax avoidance is hardly new, its mentioned in the Bible and existed long before that. I’ve never heard of any person rich or poor who would willing pay more tax when legal means exist to pay less – the outrage should be directed at how such people/organizations accumulated the sums they did – not at how they are failing to remit some percentage of it as tax.

Until tax laws are written as simply as “how much did you make – send in half” there will be organizations devoted to working in the ‘gaps.’

The amazing complexity of nearly all tax codes is the long-term consequence of special interests, influence buying and political patrimony…while no doubt facilitated by “the banks” and “the lawyers” it seems a bit narrow to only blame the distributors of the problem rather than the manufacturer. At least the distributors were serving their clientele (corrupt though they may be).

yes. And they could tax the Capital value of land imputed to the ultimate owner. Which would raise revenue to help the masses and also tend to reduce the appreciation of land prices by making other investments more attractive relatively. The perceptual spiv economy of land speculation, buy to let, and equity withdrawal is no doubt one reason for the UK having a huge trade deficit and ever growing inequality as well.

This kind of argument is common, reduce complexity. But I often wonder at it. All direct tax systems are likely to be complex as different tax payers have different personal situations. Which can become very complex. Also Governments try to use tax regimes for social policy objectives. There is a limit to how far complexity can be reduced and fairness maintained. Is not complexity overrated as a reason for tax avoidance? These days there are things called computers and software which can deal with a lot of complexity.

“You are equally right to say that “sociopathic” is a good description for both the market ideology and many of its individual adherents”

I don’t think he’s saying that at all. He seems to be saying – as will several other crackpots, soon enough – that absent government intervention, the market will deliver wonderful, pareto-optimal outcomes or something along those lines.

What I’m curious about is how financial deregulation and globalisation has affected the working and middle classes (and particularly the very poor’s) access to credit? I’ve been reading a bit of the book “how the other half banks” (and interviews, articles it’s based on) which (afaict) ties in the expansion of payday loans, expensive semi informal credit , etc (at least in the US) into financial deregulation and the banks pushing out poorer, less profitable customers.
On the other hand, my observational (so probably wrong, or at least overly simplistic )impression from ireland is that it was historically very difficult for those without assets, or a “good name” (and so relationship with the bank manager) to get any capital, so credit used to work through the family, or inter community borrowing, but also very informal. (The story goes financial deregulation expanded credit markets and so helped spur growth)
Can anyone who knows better (or doesn’t, I don’t mind) expand on that ? Or tell me where I’m mistaken ?

@22
You make the perfect neoliberal case – you want special tax rules to maybe help small farmers or shelter income from green energy projects or whatever you fancy is the right industry/group to subsidize.

Then some clever tax/legal team comes along and structures a series of corporate holding structures so that the next thing you know a hedge fund is getting small farm tax breaks and the dividends are being remitted to Guernsey to be invested in Bermuda.

If you insist that the tax code be the vehicle for wealth redistribution you’ll always have grey lines that clever people can straddle. If you choose to redistribute wealth more direclty and stop randomly favoring industries which there is approximately zero proof helps them, you have a shot at a better solution – you’ll still have tax arbitrage between countries with different codes, but you’ll reduce the need to offshore earnings in the first place.

I think it’s probably time to deploy the massive, burdensome international financial sanctions regime against these places. It was (at least until very recently) very illegal to do business with Iran for US companies and any company doing business in the US, making it effectively a worldwide law. It should be as acceptable to hide wealth through Panama as it is to send money to ISIS.

Looking forward to copycats releasing similar documents from the many other major
tax havens: the US, BVI, Caymans, Switzerland (plenty more to come from there), Lichtenstein, etc., etc. Come on copycats – more docs please!!

It is vitally important that we elect Hillary Clinton so that she can work hard to keep the this marvelously complex global financial system of holes and gaps intact. Irresponsible idealists do not realize that its collapse could easily take the global economy with it. What we need are reform measures that reduce the chances of this kind of unwanted scrutiny, not to mention the ways in which these kinds of disclosure expose the world’s leaders to blackmail.

Trader Joe, etc: It’s legitimate for the State to write tax law in a way that promotes the interest of the State, which we hereabouts like to refer to as “the people”. It is also legitimate and not that hard to discriminate between those who are paying their share and those who are taking advantage and “the way of peace they have not known.”

A friend recently asked me if there was any evidence that the most recent trade agreement with Panama enabled tax evasion in the US. I had to say I don’t know. Is there anything like that online? As a Bernie supporter I would like there to be but I’m not sure it is provable yet.

If it weren’t for these holes and gaps, how would drug and arm dealers launder their money? If it weren’t for the liquidity provided by them in 2008, the whole global financial system would have collapsed.

Most of the tax-avoiding schemes reported thus far began well before the trade agreement went into effect in October 2012. FWIW there’s an AFP piece this morning quoting the Canadian PM saying that the trade deal actually increases his government’s leverage with Panama in going after tax evasion.

The Obama admin, especially in its first term, had a pretty creditable record going after international tax evasion, including enforcement actions, international agreements, and new legislation … in the face of fierce Republican opposition. Surely it could have done more, but I’m not sure this particular issue tells against HRC.

You don’t need terribly complex arrangements, or trade agreements, to hide income abroad to avoid taxation. It has been done for many, many years and before modern complexities came into effect. Don Corleone likely did it by simply transferring currency to a friend in Panama or wherever, and making him an offer he could not refuse to invest the transferred funds as if they were his.

The ease of hiding these arrangements are called into question by the recent hacking, which will doubtless be protected against with the more advanced forms of encryption we seem to believe are required to protect our privacy.

In any event, the key to stopping such appalling behavior by the types of institutions we must have, and they include financial intermediaries, is in rigorous and and even harsh enforcement. If criminal cases cannot be made in some cases of wrongdoing(and they should be brought when they can), regulators will typically have more than enough power to act against the officers and directors of institutions that have engaged in this type of conduct .

Secretary Clinton spent 4 years as Secretary of State raising money for her husband’s foundation from corrupt world leaders and her campaign is financed primarily by individuals associated with the financial sector, so of course, this issue couldn’t possibly tell against her.

Oxbird @ 38: the key to stopping such appalling behavior . . . is in rigorous and and even harsh enforcement.

The truly appalling behavior is by our elite leaders — this is demand-driven. The banks and law firms and other institutions are gleefully responding to demand from the very people who would have to act in order for enforcement to be effective.

Go to Wikipedia and look up Bradley Birkenfeld, the whistleblower against UBS’s tax fraud schemes against the IRS. He was prosecuted for his troubles, and served time in jail — pretty much no one he exposed, either among the tax cheats or his bosses served time. After a clever PR and legal campaign, including an appearance on 60 minutes, the IRS awarded him $104 million dollars, but the IRS responded to the discovered tax fraud with an amnesty program. Oh, yeah, and while Birkenfeld was being sentenced to 40 months in prison, Obama — he with Danby’s “creditable record” — was playing golf on Martha’s Vineyard with Robert Wolf of UBS.

The US government encouraged green energy by reducing taxes if you mixed biologically derived fuels with fossil fuels. Paper mills are powered by ligen extracted from the wood. When that law was passed they mixed in fuel oil to qualify for the tax break.

Many of the issues around tax avoidance are a result of the interactions between complex laws and incentives that are mistaken. What can be tax avoidance to one might simply be responding to misaligned incentives. If the US was to massively simplify the code and return to territorial systems, much of the avoidance would be impossible.

” her campaign is financed primarily by individuals associated with the financial sector,” – Can you help us with data? I keep hearing this claim, but the published figures seem a bit lower.

The Obama admin didn’t have to pursue UBS at all, didn’t have to push FATCA through Congress, doesn’t have to be going after tax inversions at the moment. Of course Obama is no Debs, but by the standards of actual U.S. presidencies, the record is creditable.

Re Birkenfeld, the fact that he’s suing his lawyers for malpractice re whistleblowing suggests he tried to play it a little too cute in terms of how much disclosure he needed to provide for his own involvement in criminal activities, versus how much money he could get. And as you note, he’s now free and enjoying whatever the lawyers left him from the $104 million.

@41
HRC can be criticized on multiple grounds, but you might be more persuasive if you forbore combing the thesaurus for quaint insults for women.

“Tax avoidance is hardly new, its mentioned in the Bible and existed long before that. I’ve never heard of any person rich or poor who would willing pay more tax when legal means exist to pay less”

Au contraire. Any tax bureaucrat will tell you that 90% of tax collects itself – you send a letter and people pay. Compliance and enforcement is concentrated on the remaining 10%. This gets the publicity (designedly), but it’s not the bread and butter of taxation.

Bruce Wilder “Irresponsible idealists do not realize that its collapse could easily take the global economy with it.”. Actually, it could indeed. And while many – perhaps most – ordinary people would be better off, a great many would suffer. Money is a pump whose pressure enables longer chains of production. Lower the pressure, and the chains shorten, to the detriment of those who live off the furthest reaches.

‘The UK government can restrict ownership of residential property in the UK right now. But successive governments haven’t. Surely, that’s your target?’

First it’s ‘we‘ who can stop this, but then it’s ‘your target’. That makes it hard to tell whether you consider yourself to be one of the people who can make a difference. But perhaps it doesn’t matter. You do seem to be convinced that there is some course of action open to people (even if you are not one of those people) that can change the situation, perhaps at least in part by influencing the behaviour of governments. But your comment is sadly (perhaps even tragically) lacking in information about what this course of action is supposed to be. If there really is something I can do to contribute to some kind of improvement, I really do want to know what it is, and if you have relevant information you’re not disclosing, it grieves me. But perhaps you’ll forgive me for suspecting that you don’t? Maybe all you mean to say is something along the general lines of ‘Governments could stop this kind of thing if they tried, but they don’t’? I think I agree with that, but I don’t perceive the connection with the unspecified ‘us’ and ‘you’ that you (Dipper) have dragged into your comment.

1. If Hillary Clinton wins the Democratic nomination and is elected President, there are going to be a lot of her supporters who are bitterly disappointed by her performance as President. Not all of them, and not even a majority of them, but a lot.

2. If Bernie Sanders wins the Democratic nomination and is elected President, there are going to be a lot of his supporters who are bitterly disappointed by his performance as President. Not all of them, and not even a majority of them, but a lot.

3. If the Republican candidate is elected President, there are going to be a lot of people who decided not to support the Democratic candidate (whoever it is) who bitterly regret their decision. Not all of them, and not even a majority of them, but a lot.

I suppose I should apologize to Quiggin for de-railing this thread into yet another useless exchange on the U.S. election.

The most significant aspect of this peek into the legal sausage-making for Quiggin’s thesis would seem to be its sheer, massive volume. What is it the wag said about it not being what’s illegal that’s the scandal, it is what’s legal? Well, here’s what’s legal, and it measures in the terabytes! That’s a lot of billable hours for the lawyers.

And, what’s the point of these legal and financial arrangements? I agree with Quiggin that we can pretty safely gesture at an unspecified ideal of “efficient global allocation of capital” and say with confidence about the activities of Mossack Fonseca, that ain’t it.

But, what is it? The political fallout suggests elite corruption, or at least hypocrisy, of one kind or another.

And, what, if anything are we, the People, willing or able to do about elite corruption?

It is a failing of economics, that we do not have available to politics, a shared concept of the functions of financial institutions and property ownership in a modern economy — at least no concept that is useful or even superficially descriptive. Loanable funds is at least as stupid as efficient markets is credulous.

Russia has one of the least free markets in the world, precisely because they didn’t go through shock therapy. They started, but reversed course after about 6 months.

@Brett Bellmore

You’re precisely right. the list of criminals and heads of state on the lists of people involved makes a mockery of the claim that this wealth had anything to do with capitalism. Also notable is the lack of americans on said lists. But somehow, the US and capitalism are still to blame.

That reminds me of a brief interview I saw on the Teevee recently, which was painful. Robert Reich was being questioned about “breaking up the banks” and the issue was raised that this would apparently cost jobs.

Actually, no. Consolidation costs Americans millions of jobs, and our banks are nearing peak consolidation, with just the largest six banks holding more assets than all the rest combined. Break them up and we go a long way toward adding a ton of new jobs in that sector and — to your point about taxes — radically increase tax collections for the Treasury. The bigger the corporation, the more they typically spend on tax avoidance, and the more power they have to do just that. The bigger they are, the more power they have to actually write that tax avoidance legislation into trade deals and domestic tax policy.

Break up all corporations above a certain size, and we have a ginormous increase in tax collection per business, along with a ginormous increase in jobs. It’s in our best interest as a nation to do this. There is no benefit for Americans when it comes to mega-corporations, and a hell of a lot of negatives.

I’m not so fond of Jesuits, theological or financial, but better to engage them than mock them, even if it means getting one’s ears boxed now and then. (See the post above, the one with the comments off.)

“You don’t have to be a geopolitical genius to work out exactly why it was that so many people all over the world in the third quarter of the twentieth century were so keen on the idea of bank secrecy. Lots of them had been given a pretty harsh lesson about confiscation of assets, and millions more were living in the shadow of the Soviet Union. Bank secrecy was the default position.”

Also referring to the post with the comments off, this is some particularly obnoxious Lehman-splaining of tax cheating. It’s about freedom and opposing communism!

See, this is why I didn’t open up comments (or at least, I didn’t open up comments because it’s impolite to stomp on John’s existing post, but this is why I’m glad I didn’t). As I’ve said repeatedly in the past when people do the “banker-splaining” thing, the argument that “we don’t need to listen to you because some other people superficially like you did some bad things” is one that might be good or bad, but it’s certainly not one that I expected socialists to be raising. The fact that the majority of the population of Europe lived in the fear of a Communist invasion for forty years is not something that can be yaddayaddaed away.

“The fact that the majority of the population of Europe lived in the fear of a Communist invasion for forty years is not something that can be yaddayaddaed away.”

Certainly not. And of course, it was the coal miners, and the grocers, and the train conductors, and the file clerks, who squirreled all that money away in their secret accounts in the Caymans, so the Reds couldn’t seize it. Right? Or could it be that this whole ‘fear of Soviet invasion’ thing is just a way to lend some cover to wealthy people who worked the system so as to fuck over everyone else?

The Swiss Cheese post was interesting with the history of the tax havens and secrecy, but I am wondering if people in the finance industry would have had the ear of government when the government was facilitating tax havens etc, rather than that the government just came up with these policies itself. I would think there would have been quite a bit of consultation with the finance industry.

Our Prime Minister recently gave a speech on banks not doing enough in return for their social license to operate, especially after the government helped them through the financial crisis by guaranteeing them. I wouldn’t be surprised if there is some reform of banking and finance on the table, as the Prime Minister has become so gloomy about the prospects of tax reforms he offered to give back the power to tax to the States again so he didn’t have to worry about it anymore. None of the States wanted the power to tax back again, so the Prime Minister still has to think of something else to do about taxing, so now with this new banking scandal he has a good reason to reform banking to increase government revenue.

“As I’ve said repeatedly in the past when people do the “banker-splaining” thing, the argument that “we don’t need to listen to you because some other people superficially like you did some bad things” is one that might be good or bad, but it’s certainly not one that I expected socialists to be raising. The fact that the majority of the population of Europe lived in the fear of a Communist invasion for forty years is not something that can be yaddayaddaed away.”

Given that the Soviet Union had nothing whatsoever to do with “socialism,” not sure at all what your point is. The vast majority of socialists were/are against everything the USSR stood for, as it was 180 degrees away from actual leftist theory and small scale practice. We’re very likely far more adamantly opposed to it than lovers of capitalism, because we know it was State Capitalism, not socialism, and we despise capitalism in any form.

The fact that the majority of the population of Europe lived in the fear of a Communist invasion for forty years

That’s a long way from being a fact, as far as I can tell. I would agree that, for much of that time, the majority of the (demographically tiny) shareholding population of Europe lived in fear of a socialist takeover – and this will certainly have motivated those people to be in favour of banking secrecy, which was your original demonstrandum – but that’s a bit different.

To be fair, I think Daniel’s post is really interesting & informative, and says something significant about the way geopolitics meshes with politics & politics with legality. I just don’t agree with the slant he puts on it. Not sure it’ll be possible to go into that here, though.

@Phil, I think it’s interesting and informative, too, and it’s the slant that’s the problem. If you say ‘secret bank accounts and tax havens were invented so that wealthy people could hide their money from their own governments, out of fear of excessive taxation and creeping socialism’, you have the same set of facts, but it doesn’t work nearly as well as a defense of banksterism and the 1%.

And I just saw our Labor Party Opposition is going to campaign in the upcoming election with a promise that if they win Government they will hold a Royal Commission into the banking and financial services industry.

This would be quite good, as they can also work on how to finance climate mitigation when they reform the banks and financial services industry for the future.

“You don’t have to be a geopolitical genius to work out exactly why it was that so many people all over the world in the third quarter of the twentieth century were so keen on the idea of bank secrecy. Lots of them had been given a pretty harsh lesson about confiscation of assets, and millions more were living in the shadow of the Soviet Union. Bank secrecy was the default position.”

I was going to stay out of this, I really was, but the above is puzzling. When someone says that lots of people had been given a harsh lesson about confiscation of assets just before the third quarter of the twentieth century, I think automatically of Holocaust survivors. And Swiss bank secrecy was the standard for bank secrecy. And the Swiss banks, as far as I know, used that secrecy to keep hold of assets that went unclaimed for obvious reasons.

Bruce Wilder @39 “The truly appalling behavior is by our elite leaders — this is demand-driven. The banks and law firms and other institutions are gleefully responding to demand from the very people who would have to act in order for enforcement to be effective.” Only to some limited extent. Decisions made within US attorney offices and by relatively low level regulators can also impact, which is not to deny that what is needed is a cultural change on this and other enforcement issues. And, the demand does not only come from political leaders. Numerous “good citizens” of significant wealth are directed by their advisors to pursue these schemes.

Agree with Phil. I thought dsqaured’s post was useful and interesting, but I’m not sure how what the majority of the population of Europe thought about a Soviet invasion is relevant one way or another.

geo: This is a very curious and unfortunate phrase. Why shouldn’t they have had recourse to democratic politics, like the rest of us?

I thought that was answered in the post and was one of the interesting (and provocative) observations:

“The global upper class found out (the hard way) that inflation is the tax you can’t avoid, and their reaction to it was to reverse the exit-voice choices that they had made during the trentes glorieuses.”

His claim is that the decrease in inequality post-war wasn’t the result of political victory over the powers of capital, it was a fight that the wealthiest chose to sit out and, when those people did become invested in democratic politics, they wielded a great deal of influence, and that has shaped recent politics.

It’s a story which gives a lot of deference to the power of wealth, but it’s an interesting claim.

For someone who positively delights in being an ass someone around here has a thinner skin than Donald Trump. He’d never be able to comment on the internet if he had to wade through what women or gay men wade through.

That said, d-squared’s piece was interesting from a historical perspective but his analysis seems hyper narrow. The political economy needs to be looked at? Well sure, but so far as the argument goes, stylistically the trouble with rich people and the finance industry is that they always seem to get more than their share of the political economy.

Rich people needed a safety valve? I know you delight in being a contrarian, but this is taking things a bit too far. You have a perfectly interesting post, and you have to throw stuff in like that. You can’t help yourself. I get it, I take cute metaphors too far and draw fire from what I think is obviously the main thrust of a comment all the time, but that doesn’t make it a good thing.

Yes, the “political economy” allowed all this, it wasn’t JUST the finance people and the rich people who used them. But always, and even worse INCREASINGLY over the always, the finance people have had a greater share of their seats at the political economy table than the entire middle and lower classes. And on financial affairs they have by far had the commanding seat at the political economy table. So talking about how the political economy cuts against poor people and the middle class can be interesting and informative. Talking about how it enriches and helps the financial world as if that excuses them doesn’t. The real scandal is what is legal, especially in the financial world. It isn’t surprising that they usually get what they want. But you seem to translate almost always getting politicians to do what they want into the politicians being in charge of those decisions. Which isn’t how most of us look at the influence game.

Ah. As a wise commentator once said about dsquared, if he didn’t exist, we’d have to make him up. You have to admire that constant air of authority. On pretty much any topic. I recall the London banker bank-splaining how the US Chamber of Commerce works and how powerful Brad DeLong was in the Clinton administration. Amazing what he knows. Well the lickspittle of finance is back as predicted. And, once again, the story is the same: someone held a gun to a banker’s head and forced them to make more money.

It seems to me that d-squared’s analysis of motivations and consequences (intended as well as unintended) dovetails neatly with Bruce Wilder’s analysis of institutional decay. The interesting part is that what Wilder views as decay, d-squared views as the-way-the-world-works (so stop whining.)

All else being equal, both viewpoints have their merits, but if it’s more equitable social and economic arrangements we’re interested in — and being nearer the bottom than the top of the food chain, that’s most definitely what I’m interested in — Wilder’s view offers us possibilities that d-squared’s doesn’t. Even though their access to more complete and timely information, not to mention their command of superior physical resources, allows the administrative classes to win any present argument, we nevertheless retain the option of changing the subject. Cold comfort that may be, but at least we can ignore the lectures while we’re being beaten.

geo @82, I should add, part of what caught my eye about that paragraph was that it’s an interesting mirror-image to the argument that Hacker and Pierson make in Winner Take All Politics. They also argue that there was relatively little money being spent on politics in support of business interest until the 70s. Their explanation is that business interests didn’t want to lobby too hard because they were worried that they might lose an explicit confrontation. But that explanation is tentative; Hacker and Pierson also present that as a bit of a mystery.

So it is, as I said, a provocative hypothesis that the reason for that was that there were enough back-doors in the financial and political system to appease the rich.

Thanks, Daniel, for your own take on what seems to be a persistent practice. I particularly appreciate your recognition of the wild-ass behavior of the banking class running riot through regulatory loop-holes. These sort of informed posts on a left-leaning blog are too rare and always informative. That fact they’re not perfect means nothing.

It’s wonderful btw when all the whiners quite willing to tolerate flat-out wrong statements sourced by Wiki slagging the evils insist on the most rigorous sourcing when factually accurate statements about close ties linking Democrats and the financial industry. You’d think any passing knowledge of Clinton 1996 through to Obama 2015 would suffice. But no.

The big drop in inequality happens around 1940 – essentially with the move to a war economy. The post-war years seem to be an extension of the war.

Daniel’s post tells a story about a break between “exit” and “voice” in the 80s, with functional (for the moneyed classes) offshore banking and secrecy before that, and “voice” after (with the erosion of both). I don’t think this fits with either the timing or the volume. It is notable that this latest leak was a leak, not a disclosure by the authorities in preparation for another crack-down.

Daniel essentially tells a story in which tax havens and banking secrecy were good ideas once properly used, with the approval of the public (‘public policy’ after all!) but that the public have now withdrawn that approval, making retroactive scoundrels of those who were once virtuous. The problem is it’s hard to manufacture a virtuous basis for the policies. Thus we get nonsense about how banking secrecy was demanded by the masses who feared Soviet invasion. Ask yourself: if in any decade following 1946, the public were made aware of which persons were using secret bank accounts to avoid taxes, in what amounts, would the public have respond with approval of the practice? The answer is clearly ‘no’. The ‘public’ policies were created by scoundrels for the use of scoundrels.

Some 55 per cent of US companies’ international profits are booked in tax havens, compared with about 15 per cent in the early 1980s, according to economist Gabriel Zucman.

I read that and I wonder whether that 55% represents a peak, whether the proportion is still going up, whether there’s any limit to it and if so what and why.

Also I wonder, given that the percentage given is off a base of US companies’ international profits, what the ratio is of US companies’ international profits to their total profits and what direction that percentage is moving in — there’s a big difference between a change from 15% to 55% in something which is itself only 1% of a larger total and a change from 15% to 55% in something which is 99% of that larger total.

To put it in a cute homily. Imagine a nice elderly couple are going to their local pub on a Sunday, for a drink and a dinner and a chat. But when they get there it’s full of twenty somethings continuing their drug fuelled session from the night before. The bar owner has put a dj in the corner and is serving bottles of ciders and craft beer rather tHan the usual, and the kitchen is shut down. To the elderly couple this might seem like decay, but it’s a business decision. The owner wants to serve a different demographic, wants to chase a bigger buck.
Of course drug fuelled after sessions might be fun (who knows) but people still have to eat, relax, communicate in a non trivial manner. The owner is putting his money on the elderly dying off soon, and although the twenty somethings will eventually hopefully mature, there will (he guesses) be another group with the same blase attitude and lack of responsibility along soon to engage in the same manner of debauchery. But this is where he’s wrong, eventually his business model with actually decay, there will be vomit in the bathrooms, fights in the bar, stones through the window as people get thrown out.
So Bruce might be right, actually. I just don’t think we’re at the decay stage yet. We’re at the end point of the institutional change Though no doubt when we get to the decay part , with the social unrest and assassination campaigns against the absent landlord class that will surely follow, people will express shocked and dismay at what’s become of us. But it’s hardly unpredictable and it’ll be their own fault.

My impression is that the elite (whether they survived through superstition, inherited position, or genetic endowment) tended to live under the ever present threat of violence. The hard men of the village would always be lurking in the background. The fear of the midnight knock at the door, the anonymous posting of misbehaviour that wouldn’t- be tolerated on the town hall door. Their behaviour was implicitly and explicitly regulated by violence and the threat of violence. That doesn’t exist anymore.
Bear in mind I’m not excusing such a scenario , just explaining how the world works imo.

@ Ronan(rf), I rather think it was the elites who threatened the violence. By and large, those idyllic villagers were not growing their own crops on their own fields – those things more or less belonged to the elites, who in return afforded some protection against the violence of other elites. That is, as long as you paid up.

At this point I’m a little afraid of waking up to find myself standing in Woody Allen’s line behind BW himself. Exegesis can be fun, but it’s never as authoritative as the original. (Unlike, say, Brad DeLong, or d-squared himself, BW doesn’t appear with a flash, bang, and puff of smoke every time you utter his name, but still….)

It worked both ways. The peasant moral code and agrarian societies regulated it in the other direction. This is what dsquareds story is missing imo. The threat to elite interests had subsided by the 70s 80s. They behaved as they did not out of fear but because they felt they could get away with it.

Peter T @ 87
A big drop in come US inequality was in 1940 but it started dropping considerably earlier. The drop in wealth inequality occurred much earlier as well — about 1910. Take a look at the wealth inequality table in the earlier link.

Much in the change in US income inequality corresponds to two changes in the views of Southern whites. The Southern dems bought on to the New Deal during the ’30s switching their earlier economic views. That corresponds to the decline in income inequality which lasted until the late 70s when, with the Republican Southern Strategy completed, the shift of Southern Whites to the Republican Party began raising inequality again. And inequality has increased continuously since then. As mentioned by an observant poster above, the Clinton years — Rubin/Summers/Altman — were pretty much a continuation, especially in the nod to finance.

The notion of finance as courtiers to the rich rather than the rich themselves has been pushed by dsquared past the point of embarrassment. What was Rubin paid post-Clinton? A quarter of a billion?

“It’s more like this: people live in a village, plow their fields, grow stuff. Wholesome monotonous village life, church, community, all that. Then one day the steam engine is invented, and soon (in historical terms) everything changes. These same people are now in a city, living in some dorms, in the midst of poverty, crime, prostitution. So, what happened, did the elites get corrupt?”

I think maybe it was more like that in Russia and I guess near by countries as I’m not sure where you’re from, since modernization was later and less gradual because of that than England. Also you had such great troubles with leaders and violence. A girl I knew was studying the Russian Revolution and she always was saying why didn’t they just copy constitutional monarchy from England. And there was all the stuff with mules with gold teeth which I can’t recall if it was true or propaganda against kulacs. You don’t have any luck with governments in Russia, your best one was probably Tsar Alecander who freed the serfs.

These same people are now in a city, living in some dorms, in the midst of poverty, crime, prostitution. So, what happened, did the elites get corrupt?”

Yes. The relationship between base and superstructure is not monodirectional, it is dialectical, and mismatches between modes of production and systems of reproduction, the hypocrisy or delusions or nostalgia are very important, as in fer instance, political semi-feudalism meeting industrial capitalism on the banks of the Somme.

I am more inclined to blame Russia’s troubles with modernization on the Tsar and the revolutionaries and maybe anyone that gave their mules gold teeth if they did which is a waste of gold, than steam trains.

Although in fact I am pretty sure your argument is one of the arguments the revolutionary government used – that modern technology occasioned the formation of a modern form of government, instead of the tsar.

I just don’t think we’re at the decay stage yet. We’re at the end point of the institutional change

Who is this “we,” kemosabe?

Combined and uneven development is the law of historical materialism, and the lens we use to examine and engage particular local sites of class conflict. There is Syria, and there is Silicon Valley, each of which can’t really be understood using identical tools, and a less useful analysis that includes them both.

What is it that Quiggin likes to say about furious agreement breaking out? OK, maybe not “furious” but we all seem to be aware that there’s conflict between elite(s) and commons built into society, and that top >< bottom cooperation cum strategic struggle shapes political and economic institutions.

The value judgments, perhaps because they touch on our personal political commitments, touch off emotions, and I don't think one can usefully detach entirely from the value judgments — values are a core component of the dynamic social contract. So, I say, "decay" and I mean it as a value judgment and others hear it as a value judgment (not the same judgment in the ear as the mouth, be that as it may). I also mean "decay" as an objective description of the dynamics of institutions under the pressure of strategic competition — people playing the game, and the rules of the game changing under the pressure of the way the game is played.

Ze K: fundamental shifts are not explained by “elite behaviour”; elite behavior is explained by the fundamentals.

Yeah, no. The dialectic of the conflict produces the dynamic evolution of institutions. The dramaturgy of narrative explanations — mine, d2’s, Whig history, William Jennings Bryant and the Cross of Gold, Donald Trump, The Eighteenth Brumaire of Louis Napoleon, Keynes’ General Theory — that may be crap or genius, ymmv, but it is always of a time and place, and colored with values, ideologies and the norms of contemporary institutions.

I’m not pushing a fact-value distinction as a “solution” because it is not a solution. None of us can reach a god’s eye pov from nowhere with regard to social institutions, especially social institutions we live with.

Well I’m not a Marxist, and it’s one of the reasons I have my scepticisms of dsquareds analysis, I think. Complex systems theorizing seems largely to be certain brands of Marxism dressed up in New clothes. The “system” (whether the political, financial or capitalist) has agency. We’re merely living through events that “we” have no control over. Things are happening and no one has any responsibility or influence. All’s explained by Abstractions and processes that develop as mere acts of God. Seems very superstitious.

Quiggin’s OP is full of high moral dudgeon, which I endorse, but I do feel the economics is patchy. We, humans, get caught up with the “meaning” of things, and fail to take adequate account of the functions. That’s not the same as ye olde fact-value distinction, though maybe there’s an analogy.

Ronan(rf) @ 120: The “system” (whether the political, financial or capitalist) has agency. We’re merely living through events that “we” have no control over. Things are happening and no one has any responsibility or influence.

Are you referring to d2’s opening gambit?

dsquared: . . . as always, I tend to assign agency to the political system more than to the financial sector. Nearly all of those holes were intended to be there, and it was intended that the financial system used them. The process whereby the behaviour involved is redefined from acceptable deviancy to unacceptable is very interesting . . .

“intended” just seems to sit there like unexploded ordinance — if you go to examine it closely, it might take off your hand.

I was. I was going to requote that bit and all. This clear cut distinction between the “political” and “financial” system seems wrong to me. Much better to look at the overlaps , actors and interests common to both.

T: “The notion of finance as courtiers to the rich rather than the rich themselves has been pushed by dsquared past the point of embarrassment. What was Rubin paid post-Clinton? A quarter of a billion?”

Given how much of the economy the financial sector now takes up — 20% of total gross domestic product in developed economies, according to this — the financial sector pretty much *is* the rich. Sure, there are some people like the Koch brothers who still make their money off of brick and mortar industries, but they are increasingly the exception.

“Decay” is not strictly a value judgement. One of the meanings of decadence is that society can no do the things that it used to be able to do. We used to be able to solve problems, more or less, and often very brutally, but I can’t think of a recent large-scale instance of problem solving since the Montreal Protocol. The Paris Agreements were good, but in practice people are leaving this problem to the marketplace, which means that they are sort of hoping that technology advances. The Internet is the same kind of thing — luckily a protocol escaped that was suitable for people to work on it ad hoc, and wasn’t captured by the usual entities that try to capture things, so that it could grow on its own. But there was no problem solving as such.

fair points. I’m British so for me”We” is the UK electorate, and “You” is the Corbynite left.

One thing that a UK government could do is around home ownership. Planning laws in the UK make a clear distinction between domestic residences and business premises. I cannot turn my house into an office block or factory. It should be straightforward to pass a law that domestic property cannot be owned by businesses; it can only be owned by individual people. There are tunes to be played here round restrictions on eligibility, but that would be a start.

It was only since the early 80’s and the reforms of Thatcher and Reagan that Capitalism became established as the only way of running economies that delivered a satisfactory living standard for the masses. In this free-market form of capitalism, entrepreneurs engaged in Nietzschean struggles for dominance. The winners were Superhumans who alone amongst mankind possessed the necessary personalities to generate wealth. These Superhumans lived lavish global lives. States had to grant them perks on residence and tax in exchange for them sprinkling their magic dust and generating wealth for us. The dominant policies of the labour left as espoused by Tony Blair was that he would mediate with the super-rich on our behalf to bring us the benefits of this capitalism.

The banking crisis and financial crash showed us that the flow of money had in fact been the other way around; we were in effect funding them by allowing them to take massive financial risks where any losses would be borne by the people. Now we have a situation where governments are in desperate need of tax income to make up the shortfall in expenditure, so that tax issues has become critical. Also, it seems that rather than tax avoidance being a perk we granted the Superhuman elite in return for profitable businesses, tax avoidance is the business model that delivers the profit.

Clearly the game is up. A politician with clear vision , leadership, and intellectual rigour could do a lot here. Unfortunately in the UK we have Jeremy Corbyn.

Rich Pulchasky: there was no [large-scale] problem solving as such [in creating the Internet]

Some of it doesn’t seem “large-scale” because it happened in embryo, but fundamental architectural choices were made in “centralized” entities like DARPA and Xerox PARC and even Congress (Yes, Virginia, Al Gore did invent the internet!) that greatly simplified the problems of distributed cooperation. Some of it was large-scale by any reckoning, but it took place smoothly within the political frameworks of multinational business corporations — exactly the usual entities that capture such things, but so “usual” that we can fail to credit its importance, even as we celebrate the romance of guys in garages.

Lupita: The financial system is global and the solution will only come by looking at the big picture. Any national solution is just a demagogic band-aid on a gaping hole.

I wouldn’t discount the need for a large helping of demagoguery.

The financial system patches over a lot of conflict and struggle over the distribution of income and wealth with a system to facilitate distributed decision-making and cooperation in the “efficient allocation of resources and investment” blah blah.

Rich @125
We are in general agreement. The Piketty data show income at the very high end is mostly CEO pay but finance is over 20%. However, as several wise commentators have pointed out, the financialization of many corporations puts the CEOs in the financial sector by default.

The influence of the financial sector in the US is extraordinary. dsquared has demonstrated zero understanding of how that works in practice. His “as always, I tend to assign agency to the political system more than to the financial sector,” is assuming his conclusions. When confronted with evidence or someone who actually lives in that world you get insults, unfounded assertions and blather. I mean really, his training and work involve the valuation of companies, or so he has said. He’s ensconced as a banker in London until his apparently bonus-funded around-the-world tour. (Good for him. Great travel posts as well.) Would you expect him to know much of anything about the machinations of the financial industry in Washington? Yet he persists.

T @ 135: dsquared has demonstrated zero understanding of how that works in practice.

That’s absurd. And, I say that as someone, who gets plenty pissed off with his moral tendentiousness.

But, “how that works” is seldom proved by a moral narrative judgment or critique. That’s what makes d2’s contrarian (to the CT collective’s consensus) so enlightening — they encourage us to detach a bit.

I didn’t think his account of the world up to 1970 was far off the mark at all. Many of the tax shelters, as we called them in the U.S., were originally instituted in the 1940s and 1950s, under a regime of potentially very high marginal income tax rates on personal income and corporate income tax rates of at least 50% that were actually collected. Rates were high, because they had to be high to pay off a gargantuan national debt. Tax shelters under a regime of high tax rates meant that such “tax expenditures” were potent ways to wield political power, and that was also a time in the U.S. when Congressional politicians were genuinely powerful, not just the servants of lobbyists.

That aforementioned national debt, by its very size, tended to stabilize and simplify the financial system. No banker needed complex derivatives to hedge risk, for themselves or others; they were lousy with Treasuries.

It was also an era when ordinary middle-class households (in the U.S.), many with searing memories of the Great Depression, had substantial savings. A whole, nearly separate mutualized system of savings and loans competed with the large number of mostly local commercial banks and many insurance companies were also mutualized.

And, corporate business, as a general rule, was not throwing off a lot of cash in the 1960s. A lot of investment was being made, absorbing cash, and the returns on capital were declining at the margin, as wages rose with productivity.

That was then, and we are, as he implied, quite far from 1970 in the cyclic devolution of the post-war settlement as he called it.

This is bringing us far off of the ostensible topic, but I don’t think so. Or rather, I think that people here generally understand the economics a lot better than they understand the politics of change. (Not that I have any great understanding of this myself.) But from what I’ve read about previous, um, high-change societal situations, degree of social anger doesn’t necessarily bring change and it even more emphatically doesn’t necessarily lead to good change. Trump supporters are angry, but they have no real idea what is causing their very real economic losses and the policies and politicians that they support are more likely to cause them even greater losses than the reverse.

You can ask: what will motivate people to force elites to change the system other than anger? There’s two broad kinds of answers. 1) Immiseration — whether people are angry or not, once they get desperate enough, they have to act. 2) Ideological buy-in. If people broadly agree on a new ideology they can organize to have it replace the old. This doesn’t necessarily involve anger per se, but can be an intellectual and visceral belief that the old system no longer works and has to be replaced by a better one.

The problem with generalized anger is that there is not an ideology that actually addresses our present, pressing problems that’s waiting in the wings. Without that, anger leads in random directions, and is easily directed by elites against remaining elements of the old order that they don’t like.

Bruce @137
dsquared shtick is that the finance sector is always reactive. “as always, I tend to assign agency to the political system more than to the financial sector” Many of his recent posts and articles are directed at absolving the sector of responsibility for the Great Recession. His current post is part and parcel of the same assigning of agency. The method is typically deductive. That is very convenient in that it requires no specific knowledge of how the sausage gets made. And almost every time he makes the mistake of wading into the specifics on the US side he makes an ass out of himself. I still have no evidence that he knows how the finance sector exerts influence in the United States over the last several decades.

Your statement that “I didn’t think his account of the world up to 1970 was far off the mark at all” seems to be an admission that he has, at a minimum, got the last 45 years wrong. But is that all he has wrong? Wish it were that easy. At a minimum you really want to go back to an earlier era when the financiers were in charge — at least back to Morgan. It wasn’t the large national debt in the 50s you speak of that stopped the creation of the financial machinations we see today — there were other destructive financial instruments in 20s and earlier before the debt you speak of arose. You can’t put the 50s in context without the Great Depression, the New Deal and most importantly the financial regulation of the 30s.

The reactive story — finance just waited around for 50 years until Reagan “when the agency of the political” made it all OK again — just doesn’t fly.

Well, if ideology is learned behaviour, the across generation partaking in rituals, rather than the development of ideas and attitudes, what does modern liberalism give us? At least ze k’ s comfortable village life of monotony and routine has its consistency of expectations and obligations , before the steam train disrupted it all. As does my perhaps romantic notions of communal violence and moral orders undergirded with ritualistic assassination campaigns. But what does modern liberalism give us ? We’ve lost the catechism and gained Matt ygelsias? Holy wells for holly wood ?
To create an ideology you need hierarchies and institutions, ritualistic punishment for those who go against group norms and enticements for those to buy in. A position, some power or prestige. The only place we see that is on Twitter and at far right rallies, and none of it is targeted at the gentry.

Ten million things have been written about ideology, and I don’t want to get into a real consideration of what they are. Let’s just take them to be typical political ideologies like liberalism, conservatism, socialism, anarchism, nationalism etc. There is no mass ideology that works, where “works” I take to mean: addresses the primacy of environmental limits, addresses increasing productivity and resulting lack of need for most people to work, addresses the increasingly severe problems of the nation state and of how nations act within a global order.

I read that the people of Iceland, displeased with their PM because his name is mentioned in the Panama Papers, are carrying around bananas as a symbol of their belief that the symptoms of decay of the neoliberal global system should be contained to tropical areas, you know, were the poor live. If the bananas have not reached you yet, you live in a mythical village.

“Another meaning would be that the system has become so rigid that if you try to solve a problem, like free trade or tax havens, the whole system implodes.”

That is an interesting observation. If this is correct the best way to talk about reforms to the finance system would be to talk about the need to increase the resilience of the finance system. A resilient system is one that bounces back after a shock or stress:

“Resilience is the ability of a system to return to its initial state after a disturbance.
This means that if a disturbance is so large that it exceeds the system’s resilience, then the system will enter into a new state. For example, if a glass jar is thrown at a wall with enough force, it will smash into little pieces. The jar’s resilience is thus the size of the impact it can withstand without smashing.”

Resilience is already such a popular term in English speaking countries, that talking about the finance system in this way would be fine, and it is accurate since obviously the downturn has gone on a long time (although in Australia we are not so bad off thankfully).

>Or is this one of those two-step deals where free-market liberalism gets to claim all the benefits of social democracy as an argument against it.

That’s just what it looks like when you push back against the reverse two step that dominates thinking around here, where social democracy claims all the credit for the achievements of capitalism as an argument against it. A cynic is what an optimist calls a realist, after all….

You wrote that ‘… the base (forces and relations of production – globalization) determines the superstructure, including the elite culture …’ and then you wrote (as if it was justified by the foregoing statement ‘So … stop whining …. Or kill globalization.’

There is a possible inconsistency there: if the base determines the superstructure, and if a subculture of whining is part of the superstructure, then doesn’t it follow that that the whining can’t be stopped without altering the base?

Subsequently, you wrote that the base is determined by technological infrastructure. That creates a stronger appearance of inconsistency. If the base determines the superstructure and that justifies saying that nothing can be done about the superstructure without destroying or changing the base, and if the technological infrastructure determines the base, doesn’t that justify saying that nothing can be done about either the base or the superstructure without destroying, transforming, or changing the technological infrastructure? Instead of writing ‘Stop whining, or kill globalization’, shouldn’t you have written ‘Stop whining, or destroy, transform, or replace the global transport and communications network’?

ZeK @115

‘I’m trying to make a very simple point: fundamental shifts are not explained by “elite behaviour”; elite behavior is explained by the fundamentals.’

The question that suggests to me is: What are the plausible scenarios for the next fundamental shifts, and what effects will they have?

One additional use of tax havens and complex corporate structures is to transfer legacy burdens (environmental clean-up, pensions, health care and so on), while of course, retaining the money. I’ve seen quite a few instances in the US where the outcome was to stiff retired personnel, but there seem to be a number here in Australia relating to environmental responsibilities as the resources crash leads to mine closures.

If what you meant by ‘we can stop this’ was ‘the UK electorate can stop this’, I’m curious to know how you think that’s possible. I have a high degree of confidence in the capacity of the UK electorate to vote an incumbent government out of office (if they want to, and when an election comes round) but a much lower degree of confidence in the capacity of the UK electorate to control or influence the the actions of an incumbent government.

Your analytical model now appears suspiciously similar to saying ‘There’s always a bunch of stuff happening, and then after that a bunch of other stuff happening’, which is obviously true but not at all interesting.

Sumlefty now; “the elites have turned against us” has the great advantage of referring to observable facts and social mechanisms in drawing its narrative, not an elaborate, abstract meta-narrative.

Elites, by definition, are the people largely leading society’s institutions. Under the stress of the Second World War and the threat of the Cold War, a critical fraction of the American elite was preoccupied with strengthening the society as a whole, as a way of meeting an existential threat. With the weakening of the Soviet Union and the rise of oil imports, focus shifted especially among the wealthiest and among the managerial classes toward financial gain. The increased flow of funds out of the U.S., initially to pay for oil, posed a problem: how to avoid the possibility that oil sheiks would end up owning U.S. business, a problem that was fundamentally different from the possibility that commies might organize a dissatisfied working class.

Elites, by definition, are the people largely leading society’s institutions.

I don’t think so. By definition I think elites are groups with superior qualities or skills. We might use ‘elitism’ to refer to a system where elites rule and ‘democracy’ to refer to one where the people rule. Possibly a democracy could still contain elites (eg. in medicine, the military, or the arts).

I think human agency is problematic as an explanator, not because willful choice is an illusion, but because conscious intention in the face of pervasive uncertainty is. That’s somewhat true for individual choice, but the complexity of collective, social choice raises the difficulty by a power. Collective human agency becomes a complex compound of the tragedy of Oedipus. We cannot blame the gods for our suffering; our character is our destiny, but we do not fully recognize the consequences of our actions until those consequences have been realized. And, then we may curse the gods that we see clearly what we have wrought.

Yes, we adapt to the environment, an environment which is itself largely composed of artifacts of our own making. My favored analogy is that political society is a bit like a slime mold in its capacity to adapt: myriad very loosely coupled constituent parts follow their greedy little routines in search of sustenance and fear of light, with only a very primitive, barely emergent central intelligence able to gather information and direct the collective search and overcoming of obstacles.

I think we both see globalization and the erosion of national consciousness, as you put it, among elites. That phenomenon, that dynamic has a history, because it has not always been exactly so.

If, in my interpretation, the felt dependence of elites during the first three-quarters of the 20th century on the support of the masses, because of the experience of emergent Fordist methods of industrial production and the existential threats to national elites posed by the potential in those technological circumstances of a nation-in-arms, and social democracy or the New Deal is the outcome, as a payoff by elites to secure mass support and insure the strong economic functioning of a society facing rival possibilities, does that pose a contradiction to Ze K’s views?

It is not human agency that should be questioned here, it is the efficacy of human design and intention. If collectively we are that slime mold, then our talkative politics is a struggle to think, to organize from our decentralized, loosely coupled, competitive and conflicted economic cooperation, some beneficial consciousness at the center, to arbitrate conflict and plan and solve problems, including problems of our own making. Thinking is a social process and politics is society thinking aloud, trying to figure out what we are doing, while we are doing it (and lagging a bit behind), but still trying to head off the unintended consequences before they destroy us all.

I think we are constrained in our capacity to make intelligent collective choice by the difficulty of getting politics to yield intelligent design even by tentative and experimental methods. So, what we choose collectively thru the process of politics is an adaptation to the environment that politics has previously built.

The great difficulty for all intelligence is to discover what is true, in the sense of coming to believe that which can be pragmatically relied upon to make enlightened sacrifices, aka investments, that solve problems and yield a better future. Instinctively, humans accept the need for sacrifice to appease the gods, and conservatives will deny elite responsibility, preferring to attribute agency to the market god or some such — still demanding virtuous sacrifice to appease that god, perhaps by means of fiscal austerity, balanced budgets, cuts in social security, etc.

The enlightened recognize that there are no capricious gods and virtue matters because character is destiny, but face the terrible existential anxiety of knowing that we don’t know. The question is, can we learn? And, can we accept that the price of learning is paid for in mistakes, costly painful wasteful mistakes? Tragedy is inevitable in such circumstances. A creative response would seem to require a Dionysian pessimism, a la Nietzsche, but perhaps that’s too fanciful, even for CT.

If I were to narrate the political history of the U.S. from the Progressive era thru WWII, it would be a critically important point that those ambitiously aspiring to political power came from disparate social and economic backgrounds. The Progressive impulse drew a critical part of its personnel from a class of independently wealthy people, who lived on legacies of the pre-industrial commercial economy from before the Civil War, while the populists drew many of their leaders from once privileged families that had experienced financial ruin during the deflations of the long depression during the last quarter of the 19th century. Immigrant populations crowded into cities threw up their own politicians from machine politics and union leaders as well.

That the U.S. has a far more credentialed elite, much less economic and social mobility in recent years, surely has effects on politics.

And I’m sure the massive increase in immigrants, most of them from developing countries with the health problems that go with that, has absolutely no effect on those stats.

I’m glad to see you, for once, justified in your confidence. The striking decline in life expectancy, as everyone who has been following the issue knows, is among low-education whites.

That’s just what it looks like when you push back against the reverse two step that dominates thinking around here, where social democracy claims all the credit for the achievements of capitalism as an argument against it.

Not by me, at any rate. I’ve always made it clear that the current debate in the developed world is between one form of capitalism (Keynesian/social democratic welfare capitalism, leading to broadly shared prosperity) and another (financialised market liberal capitalism, leading to inequality, wage stagnation and so on). The question of whether capitalism will end, and what will replace it is one for another day.

‘There’s always a bunch of stuff happening, and then after that a bunch of other stuff happening’ doesn’t refute the theory that ‘the elites have turned against us’ and isn’t even an alternative to it, since ‘the elites have turned against us’ (if it happens to be true) is included within the scope of ‘there’s always a bunch of stuff happening, and then after that a bunch of other stuff happening’.

To answer your question, ‘what does it have to do with anything?’ (comment 168), I need to recapitulate.

I made the following observation (at comment 156): ‘Your analytical model now appears suspiciously similar to saying “There’s always a bunch of stuff happening, and then after that a bunch of other stuff happening”‘

Your immediate response (at comment 157) did not repudiate this characterisation. On the face of it, it appeared to concede the point. However, in the same comment you also asserted: ‘It was meant to refute the alternative explanation: “the elites have turned against us!”‘ I understood the pronoun ‘It’ in that sentence to refer back to ‘Ze K’s analytical model’.

So, if I was right about the antecedent of your pronoun, and if you are in fact conceding that my characterisation of your analytical model was accurate, you were saying that your analytical model was meant to refute an alternative explanation, and it was relevant for me to respond by pointing out that your model (at least as I’ve characterised it) doesn’t refute the alternative explanation and is indeed not even an alternative.

Perhaps, however, I was wrong about which ‘It’ you were referring to, or wrong to suppose that you don’t contest my characterisation of your analytical model, and in either case I look forward to your clarification.

“I’ve always made it clear that the current debate in the developed world is between one form of capitalism (Keynesian/social democratic welfare capitalism, leading to broadly shared prosperity) and another (financialised market liberal capitalism, leading to inequality, wage stagnation and so on). “

Would there be any newer streams of economic thought emerging to deal with the environmental problems we face, climate change but also other problems like loss of biodiversity and extinctions often related to land use changes, and imbalances in the phosphorous and nitrogen cycles etc?

Or do you think that the two you identify could be altered sufficiently to deal with current problems over the next half century or so?

…Neoliberals will increasingly lose the ability to discipline the Left by invoking the fear of the Right. More genuine liberals, whose sympathies lie with the Left but whose sensibility has been so disciplined by the Right that they’ve sincerely internalized these norms as the outermost edge of what is politically legitimate, will also have to rethink…

The vox article that post works from afaics is showing the decline of white identity politics. It ranges from the obvious (same sex marriage and immigration more popular) to the trivial (less believe Obama is a Muslim, don’t listen to talk radio) but what’s missing is the economics. What kind of realignment is that? I mean I’m not against the idea, but there’s no evidence there for it.

I don’t know if you have time to read it, but I in the story of the city it you can see both the agency of individuals and also what you sum up as your “steam train” theory of the role of technology and culture.

But certainly looking at various parts of the story — like the forced labour, the kulacs being dispossessed of their land, some of the city planning decisions which didn’t suit the environment or had to get approval from the central government in Moscow, — you must admit the role of human agency in decision making. And I think this article is also a case of when it is important to recognise agency, especially about the importance of memorialisation in the city’s history

“But Akhmetzyanov was not a volunteer. He was a dispossessed peasant who had been kicked off his farm in Tatarstan by the communist authorities and sent to Magnitogorsk, where he and his family were forced to work and live in a settlement surrounded by guards and barbed wire. It was the forced labour of these so-called “special resettlers” that made the record-quick construction of the plant possible.

They lived in tents for the autumn, then an earth-floored barrack through the harsh winter and hot summer, without basic amenities or medical care. According to Akhmetzyanov’s grandson Salavat, a historian who recently wrote a book about these special resettlers, 10,000 people died of hunger, cold and disease in the first five years of construction, including a son and daughter born to Ibragim and his wife.

“The story of thousands of resettlers has been forgotten,” Akhmetzyanov says. “When it comes to the war we don’t hide our losses and retreats, but here, on the topic of the 1930s, they’ve been tiptoed around.”

“If the regime had been interested in the people, the city would have built on less aggressive deadlines, and without the colossal amount of human casualties,” says Gennady Vasilyev, a local history teacher who compiles “books of memory” with the names of Magnitogorsk residents who suffered from Soviet repressions. “We have a saying that the victors aren’t judged, but this we do need to judge.”
…
Iron and steel became the watchwords of the era. “We are becoming a country of metal,” Stalin declared, and this metal was to be forged in Magnitogorsk. It became the very embodiment of the push to create an industrialised, socialist society.
…
While the existence of the special resettlers isn’t denied, it’s not readily discussed either, and a recent drive to put up a monument to them has yet to bear fruit. The administration of one district barred Vasilyev from speaking with descendants there, and he can’t find a sponsor to publish his books on a larger scale. Even today, the Magnitogorsk Iron and Steelworks website makes no mention of this forced labour on its history page.

“We need to immerse children in this topic; they are the ancestors, they should know who they are,” Vasilyev says. “The subtitle of each of my books is, ‘This should never happen again.’
…
Yet locals remain fiercely patriotic and hopeful for their city. “There are things to criticise [Magnitogorsk] for, but I criticise it with love, so that it will get better,” says Oleg Frolov, editor of the MMK-sponsored local newspaper Magnitogorsk Metal. “It produces the GDP, the might of the country. It’s not for nothing that they call us the steel heart of the motherland.””

Sorry Ze K, the misspelling was just an accident, is there a better source available in English you would recommend on Russia? The Australian newspapers don’t carry a lot of news about Russia except about Putin and foreign policy things mostly

It must have been a great change for people. I suppose I can see what you mean, the change was greater than any persons agency, and very rapid. From these village life photos to the photo of the industrial city in the other article is a big transformation .